Question
In: Accounting
PROBLEM 4–30 (Garrison text) Changes in Cost Structure; Break-Even Analysis; Operating Leverage Duchamp Company’s contribution format...
PROBLEM 4–30 (Garrison text)
Changes in Cost Structure; Break-Even Analysis; Operating Leverage
Duchamp Company’s contribution format income statement for the most recent month is given below:
Sales (30,000 units) $ 900,000
Variable expenses 630,000
Contribution margin 270,000
Fixed expenses 180,000
Operating income $ 90,000
The industry in which Duchamp Company operates is quite sensitive to cyclical movements in the economy. Thus, profits vary considerably from year to year according to general economic conditions. The company has a large amount of unused capacity and is studying ways of improving profits.
Required:
New equipment has come on the market that would allow Duchamp Company to automate a portion of its operations. Variable costs would be reduced by $9 per unit. However, fixed costs would increase to a total of $450,000 each month. Prepare two contribution format income statements, one showing current operations and one showing how operations would appear if the new equipment is purchased.
Show an Amount column, a Per Unit column, and a Percentage column on each statement. Do not show percentages for the fixed costs. (current versus proposed)
Refer to the income statements in (1) above. For both current operations and the proposed new operations, compute
(a) the degree of operating leverage,
(b) the break-even point in dollars.
Refer again to the data in (1) above. As a manager, what factor(s) would be paramount in your mind in deciding whether to purchase the new equipment?
(You may assume that ample funds are available to make the purchase.)
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Problem 5-29 (Algo) Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5,...
Problem 5-29 (Algo) Changes in Cost Structure; Break-Even
Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5,
LO5-7, LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (48,000 units × $23 per unit)
$
1,104,000
Variable expenses
772,800
Contribution margin
331,200
Fixed expenses
264,960
Net operating income
$
66,240
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general...
Problem 5-29 (Algo) Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5,...
Problem 5-29 (Algo) Changes in Cost Structure; Break-Even
Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5,
LO5-7, LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (48,000 units × $23 per unit)
$
1,104,000
Variable expenses
772,800
Contribution margin
331,200
Fixed expenses
264,960
Net operating income
$
66,240
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general...
Problem 5-29 (Algo) Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5,...
Problem 5-29 (Algo) Changes in Cost Structure; Break-Even
Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5,
LO5-7, LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (47,000 units × $22 per unit)
$
1,034,000
Variable expenses
723,800
Contribution margin
310,200
Fixed expenses
248,160
Net operating income
$
62,040
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis;
Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,
LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (43,000 units × $25 per unit)
$
1,075,000
Variable expenses
752,500
Contribution margin
322,500
Fixed expenses
258,000
Net operating income
$
64,500
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general economic...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis;
Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,
LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (43,000 units × $23 per unit)
$
989,000
Variable expenses
692,300
Contribution margin
296,700
Fixed expenses
237,360
Net operating income
$
59,340
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general economic...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis;
Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,
LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (49,000 units × $27 per unit)
$
1,323,000
Variable expenses
926,100
Contribution margin
396,900
Fixed expenses
317,520
Net operating income
$
79,380
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general economic...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis;
Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,
LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (15,000 units × $30 per
unit)
$
450,000
Variable expenses
315,000
Contribution margin
135,000
Fixed expenses
90,000
Net operating income
$
45,000
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general economic...
Question 4 (30 marks) PROBLEM 5–26 (Garrison Text) Schedule of Cost of Goods Manufactured; Overhead Analysis...
Question 4
PROBLEM 5–26 (Garrison Text) Schedule of Cost of Goods
Manufactured; Overhead Analysis
Calgary Injection Moulding operates a job-order costing system
and applies overhead cost to jobs on the basis of machine-hours. In
computing an overhead rate for the year, the company’s estimates
were as follows: manufacturing overhead cost, $248,000, and
machine-hours, 40,000. The company has provided the data in the
following table:
Beginning Ending
Raw
Materials $21,000 $16,000
Work in
Process $44,000 $40,000
Finished
Goods $68,000 $60,000
The following actual costs were incurred during the...
Contribution Margin, Break-Even Units, Break-Even Sales, Margin of Safety, Degree of Operating Leverage Aldovar Company produces...
Contribution Margin, Break-Even Units, Break-Even Sales, Margin
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Aldovar Company produces a variety of chemicals. One division
makes reagents for laboratories. The division's projected income
statement for the coming year is:
Sales (203,000 units @ $70)
$14,210,000
Total variable cost
8,120,000
Contribution margin
$6,090,000
Total fixed cost
4,945,500
Operating income
$1,144,500
Required:
1. Compute the contribution margin per unit,
and calculate the break-even point in units. Calculate the
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Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to...
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Margin of Safety, and Operating Leverage
Belmain Co. expects to maintain the same inventories at the end
of 20Y7 as at the beginning of the year. The total of all
production costs for the year is therefore assumed to be equal to
the cost of goods sold. With this in mind, the various department
heads were asked to submit estimates of the costs for their
departments during the year. A summary report of these...
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